The 2023 World Investment Report by the United Nations Conference on Trade and Development( UNCTAD) has revealed that foreign investment in Nigeria’s economy is at its lowest level in 33 years. The abysmal scorecard on the economy must be reversed to stimulate economic recovery and growth. In recent weeks, President Bola Tinubu has tried to stoke foreign investors’ interest with some tough decisions such as the fuel subsidy removal and the unification of the foreign exchange rates into a single market, the Importers and Exporters (I&E) window.
But, foreign investors are said to be cautious about investing in our economy due to some economic uncertainties. Both local and foreign investors need firm assurance that Nigeria is ready to revamp the economy and that their investments are safe. Statistics show that foreign investment inflows in Nigeria have turned negative, the worst of its kind since 1995.
As of December 2022, Nigeria’s Foreign Direct Investment (FDI) stood at $187 million, compared to $3.3billion in 2021, representing 48.2 per cent decline. In 2020, Nigeria managed to attract $687 million foreign investment. In 2019, it dropped by 50 per cent from what it was in 2018. This was largely due to equity divestment from the country.
UNCTAD data show that Nigeria lags behind its peers in African. Egypt topped the list in FDI with $11.5billion in 2022, followed by South Africa ($9.05billion), Ethiopia ($3.67billion), and Senegal ($2.14billion). In the English-speaking West African sub-region, Ghana is attracting more FDIs than Nigeria as the preferred foreign investors’ destination.
However, the recent value of greenfield projects such as the commissioning of the Dangote Refinery, and the Nigerian Liquefied Natural Gas, are reported to have increased the potential for foreign investments by 24 per cent. The negative picture of FDI as contained in the UNCTAD report is hardly surprising. Despite government’s policies to boost foreign investment, the situation has not changed significantly.
This is perhaps the time the government should woo foreign investors with some incentives. The uncertainty in our monetary policies might have contributed to low FDI. Other factors include forex volatility, difficulty in capital repatriation, insecurity and inconsistent policies. The situation became worse following the aggressive global monetary tightening and the uncertainties arising from the 2023 elections.
This has derailed the economy from achieving the set goals. For example, the flood of equity divestment signals pessimism about Nigeria’s investment and business environment. In April this year, data from the National Bureau of Statistics (NBS) showed that FDI into the country dropped by 33 per cent to $468.91 million last year. This is the lowest recorded in nine years. Besides, the International Monetary Fund (IMF) had cited monetary interventions by the Central Bank of Nigeria (CBN) as ill-advised, particularly in the exchange rate market as a hindrance to capital inflows. The depreciation of the naira against the US dollar by over 70 per cent in the official market has eroded investors’ confidence. Foreign investors are still watching the direction of the present administration and its economic policy thrusts before they will invest in the country.
Until a few years ago, Nigeria had managed to attract FDI despite its poor economic outlook. This was largely due to a vibrant oil reserves and the consumption potential of the large population. However, according to recent figures from the CBN, capital importation into the country for the production and manufacturing sector crashed last year by 48.42 per cent. Other challenges include unstable power supply and poor infrastructure. To address the decline in FDI, the government will ensure adequate security, power supply and other factors that hamper business operations.
Let the government also improve the Ease of Doing Business (EoDB), and end the multiple tax regime that has undermined profitability of businesses. The government should develop a comprehensive framework that will facilitate the movement of goods and services within and outside the country. However, the manufactured products must be of high quality to avoid being rejected in the international market.
Some years ago, the World Trade Organisation (WTO) ranked Nigeria as the preferred destination for investors interested in trade and commerce in Africa. Regrettably, Nigeria is not there anymore. Let the government strive to make Nigeria the preferred destination for foreign investors in Africa.
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